What a wonderful time to be a FOMC member. You could raise rates to stave off spiking inflation, and in the process: (1) choke off the stock market and real estate meltups, (2) put more pressure on overleveraged consumers and businesses (3) increase the budget deficit, and (4) throw emerging markets under the bus.
Alternatively, keep rates where they are and hope that inflation just goes away.
Sure, the BLS lies about inflation. Instead of the stated 2.8% CPI and 3.1% PPI, the actual numbers are closer to 6-10%. Consumers experience the actual inflation rate when they buy groceries, rent an apartment or gas up the family truckster. So, in a sense, the Fed faces the unenviable choice of penalizing consumers in order to “save” the market.
And, make no mistake about it, saving the market has been their primary goal for the past decade. They’ve had plenty of help, of course: the ECB, BoJ, BoE and SNB have all played an important role. Currencies, VIX, oil and gas — all are manipulated on a daily basis.
Remember when the death cross was a “thing?” The DMA-50 crossing below the DMA-200 was supposed to signal an impending nosedive. After central bankers got into the stock propping business in the wake of the GFC, the death cross suddenly began signaling bottoms.
Lately, stocks get an assist when the DMA-50 even approaches the DMA-200…
…let alone an important Fib level or channel line.
Although I rail sometimes about the lack of integrity in the markets, our focus is on making money. Fortunately, the fact that the Fed has painted itself into this corner has been quite helpful in that regard.
Oil and gas have sold off heavily since the inflation problem finally became apparent to central bankers and politicians [see: Once More With Feeling.] USDJPY has bounced where/when we expected. And, VIX has behaved scandalously, but predictably.
Stocks typically ramp higher in the days leading up to FOMC announcements. Depending on the decision, they either continue ramping or come unglued and backtest the former resistance through which they melted up.
The biggest question, now, is what would it take to rattle investors the algos?
continued for members…
CL and RB are still on course — remember EIA inventory data is due out at 10:30 EDT.
USDJPY has broken above the SMA200 as expected. 
VIX continues to threaten a breakdown — helping elevate the major indices to breakout status. They all have a nice opportunity to backtest, depending on how the FOMC conducts its biz.
UPDATE: 10:38 AM
Apparently, someone forgot to tell the EIA that we needed another big inventory build last week.
This obviously sets up an even more complicated situation for the Fed. I get the sense that Trump is not getting the cooperation he wants from the EIA or OPEC, tweeting:
“Oil prices are too high, OPEC is at it again. Not good!”
This echoed his Apr 20 tweet:
“Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!”
Needless to say, things are getting really complicated. We saw the Saudis and Russians respond to Trump’s first effort to get prices down, forcing a production increase on fellow OPEC members — a stark contrast with a hawkish public stance as recently as Apr 18. Earlier this morning, we saw the IEA come out with their own bearish (for prices) forecast.
UPDATE: 12:00 PM
DXY tracing out a nice channel…
UPDATE: 1:50 PM
Coming up on the Fed decision, with a press conference to follow at 2:30.
UPDATE: 2:10 PM
A quarter point hike, as was widely expected. DXY/USDJPY are bouncing as the 10Y popped back above the purple TL. I still expect rates to drop significantly, meaning I’m fading the DXY breakout and would look for this little channel to break down.
RB is holding its earlier gains. But, VIX is also popping a bit.
SPX is off very modestly.
With USDJPY spiking higher, NKD would be expected to show strong gains. So far, it’s looking fairly wishy washy.
As SPX slowly regains its tiny losses, a reminder of the upside potential of the rising red channel.
UPDATE: 3:45 PM
DXY’s initial pop is fading, leading me to believe the rising white channel detailed earlier will fail. If so, we still have a chance of DXY falling back to make the purple midline tag that was originally forecast months ago. This would also enable EURUSD to tag our 1.2597 target – ideally around the end of July.
